For a loan originator such as a mortgage company, time is literally money. During a time period after a mortgage loan is originated but before it is securitized and eventually sold on a secondary market, the mortgage company incurs a capital cost to finance at least a portion of the loan amount. The longer the loan remains unsecuritized, the bigger the capital cost to the mortgage company. For a typical mortgage company that originates 500 loans per day with an average loan amount of $175,000, it needs 500×$175,000=$87,500,000 to fully finance one day's worth of loan originations. Since warehouse lenders typically advance 95% of collateral value for mortgage loans, the mortgage company has to provide 5%×$87,500,000=$4,375,000, which must be financed with equity capital. At a capital cost of 12% per annum, each day its loans remain unsecuritized may cost the mortgage company $525,000. Therefore, it is desirable to shorten the time it takes to securitize a loan. Even a couple of days' reduction in securitization cycle time can translate into substantial savings for a loan originator.
However, traditional approaches for loan securitization involve post closing services and document custody services that are far from efficient. FIG. 1 illustrates a prior art method for processing loan documents. In step 102, a closing agent 10 (e.g., a settlement/title company) may close a loan with a borrower and prepare a package of loan documents. The package typically contains 100-150 pages of loan documents. Then, the package may be shipped overnight to a loan originator 12 (e.g., a mortgage company). In step 104, the loan originator 12 may perform a number of post closing functions, such as HUD (Department of Housing and Urban Development) form entry and reconciliation, Promissory Note entry and reconciliation, document repairs, MERS (Mortgage Electronic Registration System) registration, and government insurance. In step 106, the loan originator 12 may review the loan documents for exceptions such as, for example, missing signatures and/or missing papers. The loan originator 12 may collect repair documents in order to cure exceptions, if any. Then, all the loan documents and repair documents may be shipped from the loan originator 12 to a document custodian 14 (e.g., an investment bank). The document custodian 14 may, in step 108, provide custody services, such as custody review and document safekeeping, in support of warehouse lending and securitization. If any document exception is found in step 108, the loan originator 12 may be called upon to cure the exception.
The prior art method shown in FIG. 1 is inefficient for at least the following reasons. First, the two separate shipments of the documents, from the closing agent 10 to the loan originator 12 and then from the loan originator 12 to the document custodian 14, take at least two days. Second, the document review by both the loan originator 12 and the document custodian 14 is redundant. Third, additional time is needed for communications between the document custodian 14 and the loan originator 12 to cure exceptions revealed during custody review. Some mortgage companies have attempted to cure the deficiencies noted above by co-locating their post closing operations with document custodian operation. However, this solution only achieves limited success in improving efficiency and may not always be feasible.
The capital costs associated with securitization delay may have a greater impact on small to mid-sized loan originators whose loan volume does not accumulate fast enough. For these smaller originators, longer funding periods are typically required as saleable loans are pooled into batched whole loan sales. In addition, the smaller originators may not be in a position to achieve full market prices for their loan sales.
Other problems and drawbacks also exist.
In view of the foregoing, it would be desirable to provide a solution for streamlining post closing and custody services which overcomes the above-described deficiencies and shortcomings.